Retail
Once the jewel of commercial property , our changing habits regarding retail have seen this asset class have a difficult time over the past 15 years . Already showing signs of stress pre-pandemic as online retailing ramped up , retail capital returns have shown some volatility while income returns remain stable . Over the past ten years these have averaged five per cent per annum ; currently there ’ s been upward pressure on rents in line with inflation with December 2022 results showing a growing 5.5 per cent result . However , capital growth was hard hit pre-pandemic and continued during COVID-19 , falling over 13 per cent in 2020 before low interest rates fueled new investors seeking out affordable commercial assets resulting in yield compression . Some positive value appreciation was recorded , notably for convenience-based and smaller shopping centre assets , while improved residential values and high volumes of sales also aided the large format retail class .
Not dissimilar to other commercial assets , growing interest rates have already had a negative effect on capitalisation rates which will put capital returns into negative this year . Encouragingly , the stable nature of income returns will keep total return levels positive throughout the year .
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